Guaranteed Student Loans

Recent changes to the Federal Family Education Loan Program, formerly the Guaranteed Student Loan Program, as well as the introduction of the Federal Direct Student Loan Program, have raised concerns about whether eligible borrowers will continue to have access to subsidized loans. Many lenders and guaranty agencies expect some eligible students to have difficulty obtaining subsidized Stafford loans during the next few years. Guaranty agencies generally have arrangements to provide loans to these students. The Education Department has arranged with Sallie Mae to make loans to students to whom guaranty agencies cannot provide them. The Department has also arranged with a new agency to serve as a guarantor of last resort if existing guaranty agencies cannot provide guarantees to lenders. Predicting how well these arrangements will ensure access to loans after fiscal year 1995 is difficult, and the issue may need to be revisited later.

GAO found that: (1) eligible students will have difficulty obtaining access to subsidized loans due to recent changes to the Federal Family Education Loan program (FFELP) and the introduction of the Federal Direct Student Loan program; (2) most guaranty agencies have made arrangements to provide loans to students that have difficulty obtaining loans; (3) the Department of Education has made arrangements with Sallie Mae and a new guaranty agency to make loans if guaranty agencies are unable to provide guarantees to lenders; (4) although it is difficult to predict how these arrangements will affect loan access after fiscal year (FY) 1995, FFELP administrators believe that there is little or no risk of widespread loan access problems through FY 1995; (5) Education has several options to ensure students' access to subsidized loans if its financial arrangements prove inadequate; and (6) the issue of student loan access may need to be reevaluated in the future, since it is too early to know whether lenders will continue to provide subsidized loans to eligible borrowers.